Establishing a business in a foreign country can seem daunting at first, having to understand a new taxing system, the statutory requirements for foreigners, and how to operate your business with due diligence. Peru is one of the most stable countries in Latam due to years of consistent macroeconomic policies in addition to policies that protect and welcome foreign investment.
The general taxes that apply to businesses in Peru are the Income Tax, General Sales Tax, and Selective Consumption Tax. However, the government has established tax benefits and exceptions for businesses that operate in special industries that are considered important in accordance with the country’s policies.
Income tax, Impuesto a la renta (IR):
The income tax applies to income that originates from work and the productive usage of capital, whether it’s a movable or immovable property. Income tax rates vary depending on the type of income and how much that income is. In addition, this tax is levied via withholdings or directly carried out by the taxpayer
The income tax is levied on the yearly income, and it’s effective from January 1st to December 31st.
The income tax in Peru is divided into 5 categories:
First category: Lease, sublease.
Second category: Interest on loans, patents, royalties, capital gains.
Third category: Income from commerce and industry.
Fourth category: Independent work.
Fifth category: Dependent work.
Business operations fall under the third category. This Income Tax is levied on the income obtained from business activities carried out by any natural or legal person, and it can reach up to 29.5 % depending on the size of the business’s yearly income. Generally, this income is produced by the joint participation of capital investment and labor. The formula to calculate this tax is established by Peru’s tributary entity.
To understand how to calculate income tax in Peru, it’s important to be familiarized with UIT units. UIT stands for ‘Unidad Impositiva Tributaria’ (Tax Unit). Peru’s tributary entity, SUNAT, utilizes tax brackets expressed in UIT units to determine how much small, medium, and large businesses should be taxed.
The government establishes the value of a UIT unit every year. The 2020 value of one IUT is 4,300 PEN, which is equivalent to around 1,220 USD.
General Sales Tax, Impuesto General a las Ventas (IGV)
The General Sales Tax in Peru applies to commercial activities, the sale of goods, the import of products, construction contracts, and the sale of property when it’s sold for the first time. Whoever is on the receiving end of the goods or services is taxed.
Currently, the GST is equivalent to 18% of the sale, this includes the 16% VAT applied and the 2% municipal tax.
Taxes in Peru: Law of the Amazon
This is an example of exemptions or benefits that the government has established to boost economic activities in certain regions of the country.
The sale of goods, provision of services, and construction contracts that are carried out in the Peruvian Amazon and that concentrate on specific activities, with taxpayers established in the region are exempt from GST. The taxpayers must meet certain requirements such as having a fiscal address, administration, and production in the Amazon. Furthermore, they must keep all accounting books accordingly and have at least 70% of their fixed assets in the region as well.
If your business operates in Amazon, you may be eligible to benefit from this tax exemption. Nevertheless, it’s important to contact a local accountant that will provide you with detailed information.
Selective Consumption Tax, Impuesto Selectivo al Consumo (ISC)
SUNAT definesISC as an indirect tax that only applies to particular goods. The purpose of this tax is to discourage the consumption of products that are considered to cause negative externalities to the individual, social and environmental order.
The second purpose of this tax is what the tributary entity describes as mitigation. Through this tax, they seek to mitigate IGV tax’s regressivity by demanding a higher tax burden from those consumers who objectively show higher acquisition capacity of items such as luxury goods.
Tax rates vary depending on the type of product, these rates range from 0% to 50%.
Some products that are subject to ISC are:
Bets and luxury items.
Tax on Dividend
Dividends and any other form of profit distribution, also including remittances of net profits from Peruvian branches, are subject to a withholding when they are paid to a domiciled or non-domiciled person, as well as to a domiciled legal entity.
Resident companies that receive dividends are exempt from this tax in Peru.
Tax on Royalties
A royalty is considered as a Peruvian source of income when the goods or rights that generated this payment are used economically in the country or when a domiciled natural or legal person pays these royalties.
• When a natural person receives this royalty, it’s considered a second-category income, and a rate of 6.25% applies to the net income of a domiciled subject or a rate of 30% applies to non-domiciled subjects.
• When a legal entity receives the royalty, it’s considered a third-category income, and the tax rate is calculated accordingly.
Special Income Tax Regime
Businesses that carry out extractive, commercial, industrial or agricultural activities can benefit from the Special Income tax. Under this regime, the Income Tax is equivalent to 1.5% and the General Sales Tax is equivalent to 18%. It’s important to consult with a local accountant to have the details of this regime.
Contact Easyco to establish a company in compliance
Now that you have an understanding of how tax in Peru is structured, you are a step closer to beginning your business venture in the Inka country. Finding the appropriate type of legal entity that best fits your business’ characteristics doesn’t have to be confusing.
At Easyco, our goal is to offer you valuable legal services that help you begin your business in Peru in due diligence and meet all statutory requirements. Thanks to our streamlined process, we are able to provide our expert legal representation and services accessible to small to mid-size businesses in a swift manner.
Our team of legal experts is ready to support you with legal representation and business incorporation services. Easyco also provides additional services to guarantee your company compliance, which include: